‘This tax code is broken’: Gov. Landry pitches Louisiana tax overhaul to start special session

Louisiana Gov. Jeff Landry kicked off a two and a half week special session with a call for legislators to drastically overhaul the state’s tax code. 

“This tax code is broken. This tax code is incredibly out of date. And this tax code is holding our state back,” Landry said in an address to the Legislature. 

Landry’s plan, crafted by one of his opponents in the governor’s race, Secretary of Revenue Richard Nelson, consists of a series of interworking bills and constitutional amendments that aim to stabilize the state budget after years of relying on a temporary sales tax that is scheduled to expire June 30. 

The governor’ proposal calls for the indefinite continuation of that 0.45% state sales tax added in 2016, keeping it at the full rate of 4.45%. Some hardline, anti-tax conservatives could have a hard time with a tax renewal. 

The tax would be applied some professional and digital services. 

Landry and Nelson also want to flatten the state’s personal and business income tax brackets to one single rate, repeal the corporate franchise tax and get rid of some tax credits special interest groups favor. 

Louisiana would also put less money into state savings accounts each year, under the administration’s proposal.

If the plan passes in its entirety, analysts say it will result in a small permanent increase to the state general fund, which pays for most state services. But it will result in an overall loss of revenue, particularly money kept in reserve accounts, of a few hundred million dollars annually. 

Landry said the new tax plan will put the state on the path toward phasing out its income tax entirely. Other states, most notably neighboring Texas, do not have an income tax and make up that revenue through property and sales taxes. 

“Governments should not be picking winners and losers in any tax code,” Landry said. 

Landry’s plan calls for a single personal income tax rate of 3%, though a large portion of low-income Louisianians will not be subject to the tax. The state currently has three income tax brackets for households, topping out at 4.25%.

The proposal also increases the deduction retirees and senior citizens can claim from their state income taxes. 

The corporate income tax rate would also be leveled to 3%, down from 7.5% in the highest bracket. 

Flattening the income tax will result in a $1 billion reduction in revenue, according to the administration’s own analysis of the tax package. 

Lawmakers won’t be asked to do away with tax incentives entirely. Some sales tax exemptions would be moved out of the constitution and into statutes, where they would be easier to change. The popular homestead exemption on local property taxes and exemptions on groceries bought for home consumption and prescription drugs are likely to remain in the constitution. 

The governor also wants to prohibit local sales taxes on prescription drugs, which would lead to a loss of revenue for local governments. Expanding the local sales tax to more items will make up for some or all of this loss. 

Digital products, such as Netflix and dating app subscriptions, would be subject to sales tax under the Landry plan. Some “luxury” services , including car washing, pet grooming and landscaping, would also be taxed, Nelson has said. Lobbying is among the professional services that would be taxed, but attorneys are notably excluded. 

Landry’s proposal is designed to prevent the budget from going over a “fiscal cliff” when the temporary 0.45% sales would expire midyear 2025. The resulting loss in revenue, estimated at $400 million on the low end, would likely result in cuts to higher education and health care spending. 

Another provision in the tax package would use funds that are currently constitutionally protected to make permanent a teacher pay raise that legislators have provided in the form of a one-time stipend over the past two years. 

“We have the money to pay our teachers properly if we make the changes to unshackle ourselves from the bad decisions of the past,” Landry said.

The legislation proposes freeing $2 billion from the fund to pay down debt for the Teachers Retirement System of Louisiana. A significant portion ofK-12 and higher education budgets go toward these annual payments. Freeing up that money would then be used to fund the salary increases. 

Rep. Jack McFarland, R-Jonesboro, chairman of the powerful House Appropriations Committee, said in an interview he expects higher education to retain some savings from the debt retirement strategy. Whether the universities will have that extra cash would not be certain until the next budget is finalized in the 2025 regular legislative session.